Across large parts of the world, Generation Y or Millennials are struggling to get a foot on the property ladder without help from parents or grandparents.
Sophie Chick, Head of Residential Research of Savills Sydney, and Duong Duc Hien, Director of Residential Sales of Savills Hanoi, examines the issue from the perspectives of two different markets.
Housing affordability has become a worldwide issue since the global financial crisis (GFC), partly because mortgage lending has been significantly curtailed by regulation. It is the younger generations, usually needing the highest loan-to-value ratios and loan-to-income ratios, who are most affected.
In developed markets, this has become evident. In Australia, the share of homeowners aged 25 to 34 is 45 per cent.
In the US, the current rate is 31 per cent for under 35s, while the figure for the UK is only five per cent.
Sophie Chick believes this generational effect goes beyond the GFC and is symptomatic of how equity has become concentrated in older generations through a history of home ownership, mortgages and price rise.
Meanwhile, younger ‘equity have-nots’ find it increasingly difficult to access owner occupation, requiring large amounts of equity to fund rising prices and higher deposits.
"Generation Y is having to delay life choices such as marriage and parenthood, and one of the essential requirements to become a home purchaser is now a dual income, despite the low-interest rate period seen post-GFC,” said Chick.
Mainly supported by families
Things look different in emerging markets like Vietnam. According to the results of mid-term Population and Housing survey, home ownership ratio was 90.8 per cent in 2014, slightly dropped from 92.8 per cent in 2009.
However, a closer examination indicates that this high ratio is the result of inheritance or significant financial support from the older generation. Duong Duc Hien believes that without this help, home ownership for under 35s is challenging.
“Admittedly there is a gap between young buyers’ income and housing price in big cities like Hanoi and Ho Chi Minh City. A mid-end 2-bedroom apartment in Hanoi costs $140,000 - 200,000, close to developed markets’ average while the average income in Vietnam is nowhere near,” said Duong.
Family support is playing a large part in the financial capability of young home buyers in Vietnam.
One option for Generation Y in the rest of the world is the private rented sector. Around one-third of the population in Anglophone countries now rent, while those with a shorter history of widespread owner occupation have always experienced high rental rates.
However, owner-occupation rates in these formerly tenanted countries tend to be rising. It might be expected that they, too, will see a gradual concentration of housing equity among older age groups.
The policy challenge across the developed world is how to deal with a generation of renters unable to access housing unless they receive a legacy from older generations.
“Few governments will want to see Gen Y grow up into elderly renters, in need of housing support and rent subsidy at cost to the public purse. So, the focus will be on how to provide the secure, rented accommodation needed now while encouraging a new generation of owner-occupiers over the longer term,” said Chick.
This will be a particular issue for developed economies, but not irrelevant to recently emerged ones, such as Vietnam.
Chick expects that the scarcity of equity among first-time buyers and limits to affordability in many western countries will act as an effective ceiling to house prices and lower price growth will be the result.
For Vietnam, Duong believes this issue will encourage buyers to use financial leverage, which is yet to be popular. The growth of Vietnam economy in coming years hopefully will increase the average income and bring it closer to housing price.